Dáil Éireann Debate, Wednesday - 15 June 2016
214. Deputy Martin Heydon asked the Minister for Jobs, Enterprise and Innovation if she will consider a proposal (details supplied) for dealing with creditors and employees of companies experiencing financial difficulties; and if she will make a statement on the matter. [16362/16]
View answerLimited liability of companies, through its 150 year history in Irish law, has always been a concession to enterprise - a means of incentivising and encouraging entrepreneurs to overcome aversion to risk and to make investments in business ventures that might be beneficial to the economy at large. This concession can be open to abuse and companies can use the corporate form to evade debts that they are perfectly able to pay, for example, through tactical insolvency of subsidiaries within otherwise solvent corporate groups. As a result, the legislature has developed a number of safeguards that are aimed at reducing the opportunities for abuse.
The most important of these safeguards is the common law doctrine of piercing the corporate veil. This occurs where the veil of incorporation is used fraudulently to shield the owners of a company from liability, and where the subsidiary company is merely a “sham façade” of its parent company. In such circumstances, the owners of the company can be made liable by the courts for money owed by the company to its creditors, including employees. The courts are rightly hesitant to apply this doctrine liberally: much of the beneficial effect of the concession of limited liability would be compromised if veil-piercing occurred on a regular basis. However, it does give creditors recourse where they have been genuinely defrauded.
Since news of the Clerys insolvency broke, the position that we have maintained is that we must be careful not to take rushed steps to amend the law and to create unintended consequences. As part of the twin track process put in place by my predecessor, the Company Law Review Group has been asked to examine legislation with a view to recommending ways company law could be amended to better safeguard employees and creditors. That work is currently ongoing and any recommendations made by the Group will receive careful consideration, when received.
